<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 2000
Commission File Number 1-13388
GUIDANT CORPORATION
(Exact name of Registrant as specified in its charter)
INDIANA 35-1931722
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
111 MONUMENT CIRCLE, 29TH FLOOR
INDIANAPOLIS, INDIANA 46204-5129
(Address of principal executive offices)
Registrant's telephone number, including area code: (317) 971-2000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
The number of shares of common stock outstanding as of July 31, 2000:
Class Number of Shares Outstanding
----- ----------------------------
Common 306,871,119
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
GUIDANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in millions, except per-share data)
(unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
2000 1999 2000 1999
Net sales $668.4 610.8 $1,299.1 $1,207.2
Cost of products sold 162.3 160.1 303.1 308.8
----- ----- -------- --------
Gross profit 506.1 450.7 996.0 898.4
Research and development 93.0 81.7 179.4 166.7
Purchased research and development -- -- -- 49.0
Sales, marketing, and administrative 191.9 174.8 377.5 351.4
Litigation settlement gain, net -- -- (10.8) --
Foundation contribution -- -- 10.8 --
Interest, net 15.4 15.0 28.8 27.1
Royalties, net 14.5 12.0 28.5 26.0
Amortization 11.4 10.7 22.9 19.4
Other, net (1.6) 6.3 (1.3) (6.6)
------ ----- -------- --------
Income before income taxes and
cumulative effect of change in
accounting principle 181.5 150.2 360.2 265.4
Income taxes 57.2 58.6 117.1 122.2
------ ----- -------- --------
Income before cumulative effect of
change in accounting principle 124.3 91.6 243.1 143.2
Cumulative effect of change in
accounting principle, net -- -- -- (3.3)
-- -- -- --------
Net income $124.3 $91.6 $ 243.1 $ 139.9
====== ===== ======== ========
Earnings per share - basic $ 0.41 $0.30 $ 0.81 $ 0.47
====== ===== ======== ========
Earnings per share - assuming dilution $ 0.40 $0.29 $ 0.78 $ 0.45
====== ===== ======== ========
See notes to consolidated financial statements.
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GUIDANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
JUNE 30, DECEMBER 31,
2000 1999
---- ----
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 58.5 $ 27.8
Short-term investments 4.6 --
Accounts receivable, net of allowances
of $16.1(2000) and $15.5(1999) 568.9 476.2
Other receivables 14.7 16.5
Inventories 235.5 242.7
Deferred income taxes 125.3 120.2
Impulse Dynamics Option 125.0 --
Prepaid expenses 32.2 32.7
---------- ----------
Total Current Assets 1,164.7 916.1
OTHER ASSETS
Goodwill, net of allowances
of $120.2(2000) and $105.6(1999) 461.1 467.7
Other intangible assets, net of allowances
of $39.6(2000) and $31.0(1999) 198.0 199.7
Deferred income taxes 59.9 70.1
Investments 46.8 46.8
Sundry 38.1 35.3
Property and equipment, net of accumulated
depreciation of $369.5 (2000) and
$331.9 (1999) 529.7 514.5
---------- ----------
$ 2,498.3 $ 2,250.2
========== ==========
See notes to consolidated financial statements.
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GUIDANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
JUNE 30, DECEMBER 31,
2000 1999
----------- -----------
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 54.6 $ 68.7
Employee compensation 101.6 108.6
Other liabilities 145.3 179.2
Income taxes payable 58.7 22.0
Current portion of long-term debt 310.0 360.0
---------- ----------
Total Current Liabilities 670.2 738.5
NONCURRENT LIABILITIES
Long-term debt 703.6 527.7
Other 118.3 116.7
---------- ----------
821.9 644.4
Commitments and contingencies
SHAREHOLDERS' EQUITY
Common stock-no par value:
Authorized shares: 1,000,000,000
Issued shares: 307,453,000 192.9 192.9
Additional paid-in capital 178.5 257.2
Retained earnings 775.4 532.2
Deferred cost, ESOP (36.9) (38.5)
Treasury stock, at cost:
Shares: 941,757 (2000)
616,968 (1999) (51.8) (32.8)
Accumulated other comprehensive income (51.9) (43.7)
---------- ----------
1,006.2 867.3
---------- ----------
$ 2,498.3 $ 2,250.2
========== ==========
See notes to consolidated financial statements.
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GUIDANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(Dollars in millions)
SIX MONTHS ENDED
JUNE 30,
--------
2000 1999
---- ----
(unaudited)
CASH PROVIDED BY OPERATING ACTIVITIES:
Net income $ 243.1 $ 139.9
ADJUSTMENTS TO RECONCILE NET INCOME TO CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation 42.7 39.8
Amortization of intangible assets 22.9 19.4
Provision for inventory and other losses 19.8 16.5
Purchased research and development -- 49.0
Other noncash expenses, net 16.7 12.6
---------- ----------
345.2 277.2
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Receivables, increase (99.8) (12.1)
Inventories, increase (15.3) (21.9)
Prepaid expenses and other assets, increase (3.6) (2.0)
Accounts payable and accrued expenses,
decrease (20.0) (38.0)
Income taxes payable, increase 37.3 86.8
Other liabilities, decrease (29.5) (8.6)
Payable to Sulzer Medica -- (200.0)
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 214.3 81.4
INVESTING ACTIVITIES:
Additions of property and equipment, net (66.3) (89.6)
Impulse Dynamics Option (125.0) --
Purchases of available-for-sale securities (0.3) (7.8)
Sale/maturity of available-for-sale securities 3.1 19.4
Additions of other assets, net (9.5) (36.4)
Acquisition, net of cash acquired -- (568.0)
---------- ----------
NET CASH USED FOR INVESTING ACTIVITIES (198.0) (682.4)
FINANCING ACTIVITIES:
Proceeds from long-term borrowings -- 346.4
Increase in borrowings, net 126.6 330.5
Purchases of common stock and other capital
transactions, net of tax (112.1) (66.5)
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 14.5 610.4
Effect of Exchange Rate Changes on Cash (0.1) (2.2)
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 30.7 7.2
Cash and Cash Equivalents at Beginning of Period 27.8 17.3
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD. $ 58.5 $ 24.5
========== ==========
See notes to consolidated financial statements.
5
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GUIDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions)
(unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information
necessary for a fair presentation of results of operations, financial position,
and cash flows in conformity with generally accepted accounting principles.
Operating results from interim periods are not necessarily indicative of results
that may be expected for the fiscal year as a whole. In the opinion of
management, the consolidated financial statements reflect all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation of the Company's results for the periods presented. The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues, expenses, and related
disclosures at the date of the financial statements and during the reporting
period. Actual results could differ from these estimates.
For further information, refer to the consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1999.
NOTE 2 - INVENTORIES
Inventories consisted of the following:
JUNE 30, DECEMBER 31,
2000 1999
------- -----
Finished products $141.7 $135.1
Work in process 34.2 39.9
Raw materials and supplies 59.6 67.7
------ ------
$235.5 $242.7
====== ======
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GUIDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions)
(unaudited)
NOTE 3 - EARNINGS PER SHARE
The following table sets forth the computation of earnings per share:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------- -------
2000 1999 2000 1999
------- ------- ------- -------
Income before cumulative effect of
accounting change $ 124.3 $ 91.6 $ 243.1 $ 143.2
Cumulative effect of accounting
change, net -- -- -- (3.3)
------- ------- ------- -------
Net income $ 124.3 $ 91.6 $ 243.1 $ 139.9
======= ======= ======= =======
Weighted-average common shares
outstanding 300.78 300.48 300.83 300.39
Effect of employee stock options 8.46 10.27 9.74 10.86
------- ------- ------- -------
Weighted-average common shares
outstanding and assumed conversions 309.24 310.75 310.57 311.25
======= ======= ======= =======
EARNINGS PER SHARE - BASIC:
Income before cumulative effect of
accounting change $ 0.41 $ 0.30 $ 0.81 $ 0.48
Cumulative effect of accounting
change, net -- -- -- (0.01)
------- ------ ------- -------
EARNINGS PER SHARE - BASIC $ 0.41 $ 0.30 $ 0.81 $ 0.47
======= ======= ======= =======
EARNINGS PER SHARE - ASSUMING DILUTION:
Income before cumulative effect of
accounting change $ 0.40 $ 0.29 $ 0.78 $ 0.46
Cumulative effect of accounting
change, net -- -- -- (0.01)
------- ------- ------- -------
EARNINGS PER SHARE - ASSUMING
DILUTION $ 0.40 $ 0.29 $ 0.78 $ 0.45
======= ======= ======= =======
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GUIDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - COMPREHENSIVE INCOME
Comprehensive income comprises net income adjusted for the changes in unrealized
gains or losses on available-for-sale securities and foreign currency
translation adjustments. For the second quarter of 2000 and 1999, comprehensive
income was $122.4 million and $86.3 million, respectively. Comprehensive income
for the six months ended June 30, 2000 and 1999 was $234.9 million and $116.1
million, respectively.
NOTE 5 - SEGMENT INFORMATION
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
GEOGRAPHIC INFORMATION: 2000 1999 2000 1999
---- ---- ---- ----
NET SALES(1):
United States $ 480.4 $ 432.4 $ 929.5 $ 863.7
International 188.0 178.4 369.6 343.5
------- ------- -------- --------
$ 668.4 $ 610.8 $1,299.1 $1,207.2
======= ======= ======== ========
(1) Revenues are attributed to countries based on location of the customer.
JUNE 30, DECEMBER 31,
LONG-LIVED ASSETS: 2000 1999
---- ----
United States $480.7 $467.6
International 49.0 46.9
------ ------
$529.7 $514.5
====== ======
THREE MONTHS ENDED SIX MONTHS ENDED
NET SALES OF CLASSES JUNE 30, JUNE 30,
OF SIMILAR PRODUCTS: 2000 1999 2000 1999
------- ------- -------- --------
Vascular intervention $ 322.0 $ 317.5 $ 643.3 $ 641.9
Cardiac rhythm management 318.6 269.8 607.3 515.4
Cardiac & vascular surgery 27.8 23.5 48.5 49.9
------- ------- -------- --------
$ 668.4 $ 610.8 $1,299.1 $1,207.2
======= ======= ======== ========
NOTE 6 - TECHNOLOGY AGREEMENT
On April 3, 2000, Guidant signed a broad agreement with Johnson & Johnson that
covers various technologies and patents. As part of the agreement, Guidant
obtained an exclusive option from Impulse Dynamics, N.V. to acquire emerging
cardiovascular technology for the treatment of heart failure. Under the terms of
the agreement, Guidant paid Impulse Dynamics $125 million for the exclusive
right to evaluate cardiovascular technology currently under development by
Impulse Dynamics. This payment will be accounted for as a current asset until
Guidant determines whether or not to proceed with the acquisition of the
exclusive rights to this technology. If Guidant proceeds with that acquisition,
additional payments would be approximately $300 million plus certain potential
contingent payments. In addition, Guidant and Cordis Corporation (Cordis), a
wholly owned subsidiary of Johnson & Johnson, have agreed to dismiss all current
litigation between them and agree to resolve the remaining disputes in future
arbitration proceedings. The arbitration process is scheduled to begin in
October 2000 and the
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GUIDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - TECHNOLOGY AGREEMENT (CONTINUED)
arbitration hearing is expected to take place in mid-2001. Also as part of this
agreement, Cordis and Guidant received licenses to the other's patents involved
in the disputes to ensure future product availability. Finally, the agreement
establishes Cordis as a U.S. distributor of rapid-exchange balloon dilatation
catheters supplied by Guidant.
NOTE 7 - CONTINGENCIES
The Company is a party to various legal actions which have arisen in the normal
course of business. The following is a select listing of cases primarily in
which Guidant is a defendant which are required to be disclosed under generally
accepted accounting principles. A listing of additional cases in which Guidant
is a plaintiff is available in the Company's most recent report on Form 10-K
filed with the Securities and Exchange Commission as updated on subsequent
filings on Form 10-Q.
On October 3, 1997, Cordis filed suit against the Company and Advanced
Cardiovascular Systems, Inc. (ACS), the Company's wholly owned subsidiary,
alleging that the sale of the ACS MULTI-LINK Coronary Stent infringes the
"Palmaz/Schatz" patents owned by Cordis. In addition, on December 2, 1997,
Cordis filed suit against ACS alleging that the ACS RX ROCKET Coronary
Dilatation Catheter infringes the "Pinchuk" patents owned by Cordis. A separate
lawsuit was also filed against the Company in December 1997 in The Netherlands
alleging infringement of the European equivalents of these patents. On April 3,
2000, the parties agreed to dismiss all patent litigation between them and
resolve remaining disputes in future arbitration proceedings. As part of the
agreement, the parties received licenses to the other's patents involved in the
disputes. The arbitration proceedings will determine what, if any, payments need
to be made. In the arbitration proceeding regarding the Palmaz/Schatz patents,
Cordis is allowed to assert a limited number of claims from the following United
States patents: 5,102,417; 4,733,762; and 5,902,332. The timing of the
arbitration hearing will depend on the timing of the lawsuits filed by Cordis
against Boston Scientific Corporation and Medtronic AVE, Inc. on the
Palmaz/Schatz patents. In the arbitration proceeding regarding the Pinchuk
patents, Cordis is allowed to assert a limited number of claims from the
following United States patents: 5,156,612; 5,304,197; 5,449,371; and 5,738,653.
The arbitration process is scheduled to begin in October 2000 and the
arbitration hearing is expected to take place in mid-2001.
On November 6, 1997, Medtronic, Inc., (Medtronic) filed suit against ACS in the
District Court of Minnesota, alleging that the ACS RX MULTI-LINK Coronary Stent
infringes a patent owned by Medtronic. Trial by jury commenced on October 18,
1999, and in late November 1999, the court granted ACS' and Guidant's motions
for a directed verdict of non-infringement. A Final Judgment of non-infringement
was entered on January 12, 2000. Medtronic has appealed. Medtronic filed a
second complaint alleging infringement of the same patent by the ACS MULTI-LINK
OTW, the ACS MULTI-LINK RX DUET, the ACS MULTI-LINK OTW DUET, and SOLO Coronary
Stents and MEGALINK Peripheral Stent. In this new complaint, as well as the
complaint in the earlier action, Medtronic is seeking injunctive relief and
monetary damages. In view of the appeal in the first lawsuit, the parties have
agreed to a stay of the second lawsuit pending the outcome of the appeal.
On February 18, 1998, Arterial Vascular Engineering, Inc., (AVE) (n/k/a
Medtronic AVE, Inc.) filed suit against ACS in the District Court of Delaware
alleging that the sale of the ACS MULTI-LINK Coronary Stent infringes certain
patents owned by
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GUIDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - CONTINGENCIES (CONTINUED)
Medtronic AVE. The suit is consolidated with a suit by ACS alleging infringement
by Medtronic AVE of certain ACS stent patents. The Medtronic AVE complaint also
alleges misappropriation of trade secrets and breach of a confidentiality
agreement by ACS. In the lawsuit, Medtronic AVE is seeking injunctive relief,
monetary damages, and to invalidate ACS stent patents asserted against Medtronic
AVE. The trial is currently scheduled to commence in August 2001.
On December 29, 1998, SciMed Life Systems, Inc. (SciMed), a subsidiary of Boston
Scientific Corporation (BSC), filed suit against the Company in The Hague, The
Netherlands, alleging infringement of a European patent owned by SciMed by the
ACS RX ECLIPSE Coronary Dilatation Catheter, ACS RX MULTI-LINK, ACS RX
MULTI-LINK HP, and ACS MULTI-LINK RX DUET Coronary Stent Systems. On January 13,
1999, SciMed also filed suit against the Company, ACS, and Guidant Sales
Corporation (GSC), a wholly owned subsidiary of the Company, in the Northern
District of California alleging that the same coronary stent systems infringe
certain of SciMed's U.S. patents. On May 17, 2000, the Company and BSC agreed on
a settlement structure covering all patent litigation pending between the two
companies. As a result, both of these cases have been dismissed with prejudice
by BSC. In addition, in a lawsuit originally filed against ACS on May 31, 1994,
SciMed alleged that the ACS RX ELIPSE coronary dilatation catheter and the ACS
RX MULTILINK coronary stent system infringe certain patents owned by SciMed. On
June 15, 1999, the Court entered an order granting a motion for summary judgment
of non-infringement in favor of ACS. SciMed appealed this decision. This case is
also covered by the settlement between the parties. However, the parties have
agreed that the appeal will continue and there may be a payment required based
on the outcome of the appeal. The payment, if any, will not be material.
On March 31, 1999, Pacesetter, Inc., filed suit against GSC and Cardiac
Pacemakers, Inc. (CPI), a wholly owned subsidiary of the Company, in the Central
District of California, alleging that rate responsive pacemakers or
defibrillators having rate responsive pacing (including, by name, the VIGOR SR
and VIGOR DR pacemakers) infringe two patents owned by Pacesetter. In the
lawsuit, Pacesetter is seeking injunctive relief and monetary damages.
The Company believes that it has substantial and meritorious defenses against
the above infringement claims and intends to vigorously contest them. The
Company has filed suit and has lawsuits and other legal actions currently
outstanding against most of the companies discussed above. While it is not
possible to predict or determine the outcomes of the legal actions brought
against it, or to provide an estimate of any additional losses, if any, that may
arise, the Company believes the costs associated with all of these actions will
not have a material adverse effect on its consolidated financial position or
liquidity, but could possibly be material to the consolidated results of
operations of any one period.
Further, additional claims may be asserted in the future relative to events
currently unknown to management. Management believes that the Company's
risk-management practices, including insurance coverage, are reasonably adequate
to protect against potential product liability losses.
On November 26, 1996, the Company, CPI, GSC, and Lilly filed a patent
infringement suit against St. Jude Medical, Inc. and its subsidiaries,
Pacesetter, Inc. and Ventritex, Inc. (collectively, "St. Jude"), in the United
States District Court for the Southern District of Indiana (the "Indiana
Action"). In the complaint, as amended, the Company alleges that all of St.
Jude's defibrillator products are the
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GUIDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - CONTINGENCIES (CONTINUED)
same or similar to certain Ventritex devices which Ventritex admitted infringed
valid, enforceable claims of certain fundamental U.S. defibrillator patents
licensed to CPI. Among other defenses to this action, St. Jude claimed that it
had a license to these patents because it acquired, in 1996, certain assets or
stock of several Telectronics companies, including rights under a license
agreement (the "Telectronics Agreement") entered into in 1994 among CPI, Lilly,
and certain entities affiliated with Telectronics Holdings Ltd. (Telectronics).
The Company asserted that licensing rights under the Telectronics Agreement did
not transfer to St. Jude, and the purported transfer of the Telectronics
Agreement to St. Jude was null and void under the terms of the Telectronics
Agreement.
On December 24, 1996, Telectronics and Pacesetter filed suit against the
Company, CPI, GSC, and Lilly in the United States District Court for the
District of Minnesota alleging that the question of the validity of the
purported transfer of Telectronics Agreement should be resolved pursuant to an
arbitration provision in the Telectronics Agreement. On July 9, 1998, the
Minnesota District Court entered an order referring the matter to arbitration
and, as a result, the question of the validity of the purported transfer of the
Telectronics Agreement was arbitrated in a proceeding involving the Company,
CPI, GSC, Lilly, and Telectronics. The Indiana Action was stayed to allow the
arbitrator to rule on this transfer question.
On July 10, 2000, the arbitrator determined in a Final Award that St. Jude's
1996 acquisition of certain Telectronics' assets and stock did not satisfy the
transfer requirements of the License Agreement, and that the purported transfer
of the Telectronics Agreement to St. Jude was null and void. The Company will
now pursue its patent infringement claims against St. Jude's defibrillator
products in the Indiana Action. The complaint seeks an injunction against
further sales of infringing defibrillator products, damages for past sales, and
a finding of willful infringement.
11
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Guidant Corporation (Guidant or the Company) is a global company that designs,
develops, manufactures, and markets a broad range of innovative, high-quality
therapeutic medical devices for the treatment of cardiovascular and vascular
diseases. Guidant is a leader in the medical device industry and offers: i)
peripheral and coronary stents, coronary balloon dilatation catheters, and
related accessories; ii) automatic implantable cardioverter defibrillator (AICD)
systems, which are used to detect and treat abnormally fast heart rhythms
(tachycardia); iii) a full line of implantable pacemaker systems used to manage
slow or irregular heart rhythms (bradycardia); iv) implantable resynchronization
therapy for the treatment of heart failure; v) products for use in minimally
invasive vascular surgeries, including the treatment of abdominal aortic
aneurysms (AAA); and vi) products for use in minimally invasive cardiac
surgeries, and products to perform cardiac artery bypass grafting (CABG) on a
beating heart. Guidant has principal operations in the United States, Western
Europe, and Japan. The Company markets its products in nearly 100 countries
through a direct sales force in the United States and a combination of direct
sales representatives and independent distributors in international markets.
Cardiovascular disease continues to be the leading cause of death in the United
States. Guidant's product portfolio has made it a leader in the cardiovascular
markets it serves, but Guidant is also committed to developing innovative
products that will address significant remaining unmet clinical needs. Guidant's
business strategy is to design therapeutic products which improve the quality of
patient care and reduce treatment costs. In implementing this strategy, the
Company focuses on the following three areas which it believes are critical to
its future success: (i) global product innovation, (ii) economic partnerships
with customers worldwide, and (iii) organizational excellence.
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The following tables are summaries of the Company's net sales and major costs
and expenses excluding the impact of special items. For purposes of analysis the
Company employs a concept of operating income, which is defined as gross profit
less research and development and sales, marketing, and administrative expenses,
excluding special items.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------- -------
2000 1999 2000 1999
---- ---- ---- ----
(Dollars in millions)
(unaudited)
Total net sales $ 668.4 $ 610.8 $1,299.1 $1,207.2
Cost of products sold 162.3 149.1 303.1 290.9
------- ------- -------- --------
Gross profit 506.1 461.7 996.0 916.3
Research and development 93.0 81.2 179.4 165.7
Sales, marketing, and administrative 191.9 173.3 377.5 349.0
------- ------- -------- --------
284.9 254.5 556.9 514.7
Operating income $ 221.2 $ 207.2(1) $ 439.1 $ 401.6(1)
======= ======= ======== ========
AS A PERCENT OF NET SALES
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
2000 1999 2000 1999
---- ---- ---- ----
Total net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 24.3 24.4 23.3 24.1
------- ------- -------- --------
Gross profit 75.7 75.6 76.7 75.9
Research and development 13.9 13.3 13.8 13.7
Sales, marketing, and administrative 28.7 28.4 29.1 28.9
------- ------- -------- --------
42.6 41.7 42.9 42.6
Operating income 33.1% 33.9%(1) 33.8% 33.3%(1)
======= ======= ======== ========
(1)Excludes purchased research and development charge of $49.0 million. Also
excludes the impact of stay-pay and the purchase accounting write-up of acquired
Intermedics inventory sold for a total of $13.0 million and $21.3 million for
the three and six month periods ended June 30, 1999, respectively. Therefore,
the cost of products sold, gross profit, research and development, and sales,
marketing, and administrative lines displayed above do not agree to the reported
consolidated statement of income presentation for 1999.
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OPERATING RESULTS - THREE AND SIX MONTHS ENDED JUNE 30, 2000
The Company had worldwide net sales of $668.4 million for the three months ended
June 30, 2000, reflecting an increase of $57.6 million or 9% over 1999. Growth
in unit volume of 13% increased net sales, while price declines and fluctuations
in foreign currency exchange rates decreased net sales 3% and 1%, respectively.
Sales for the six months ended June 30, 2000, of $1,299.1 million, increased
$91.9 million or 8% over the same period in 1999. Unit volume growth of 12% was
offset by price declines of 3% and unfavorable foreign currency exchange rate
impact of 1%.
Sales growth in both periods was driven by AICDs and pacemakers, offset somewhat
by a decline in stent revenues in the U.S. and the sale of the general surgery
product line in July 1999. General surgery product sales were $11.9 million and
$27.6 million for the three and six month periods ended June 30, 1999,
respectively. Emerging products accounted for 40% of the growth in the second
quarter of 2000 as compared to the second quarter of 1999. Emerging products
include treatments for AAA, heart failure, peripheral vascular disease, and
products for beating heart bypass. Excluding unfavorable exchange rate impact
and 1999 revenues from general surgery, revenue growth in the second quarter of
2000 over the second quarter of 1999 would have totaled 13%. Revenue growth for
the six months ended June 30, 2000 would have totaled 11% calculated the same
way.
AICD systems sales of $180.9 million grew 26.9% for the three months ended June
30, 2000, as compared to the three months ended June 30, 1999. For the six
months ended June 30, 2000, AICD system sales were $340.5 million, representing
growth of $58.5 million or 20.7% over the first six months of 1999. Growth in
both periods is due to the market launch of the VENTAK PRIZM in the U.S. in
February 2000. The VENTAK PRIZM is the smallest dual-chamber implantable
defibrillator commercially available with a unique pacemaker-like shape and
six-year longevity.
Pacemaker product sales were $137.8 million for the three months ended June 30,
2000, compared to $127.2 million for the three months ended June 30, 1999.
United States and international sales of these products increased 8.9% and 7.1%,
respectively, for the three months ended June 30, 2000, compared to the three
months ended June 30, 1999. Sales of these products for the first half of 2000
were $267.0 million compared to $233.3 million in the first half of 1999,
representing growth of 14.4%. The first half of 1999 reflects the impact of the
Intermedics acquisition for only five months, as that transaction was completed
February 1, 1999, and was
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<PAGE> 15
accounted for using the purchase method of accounting. In addition, pacemaker
sales growth in both periods was driven by the DISCOVERY and PULSAR MAX families
of pacing devices. On January 12, 2000, Guidant released the next generation in
pacemaker devices, the PULSAR MAX II and the DISCOVERY II, in Europe. Guidant
received approval to market the DISCOVERY II in the U.S. on March 10, 2000.
Sales of coronary stents in the United States during the three months ended June
30, 2000, were $165.8 million compared to $174.5 million during the same period
in 1999. Stent unit growth in the U.S. of 3% was offset by a decline in average
selling price of 8% from the quarter ended June 30, 1999, which is in line with
recent trends. International sales of these products during the second quarter
of 2000 were $58.1 million compared to $57.8 million during the second quarter
of 1999. International unit growth of 11% was offset by price declines of 9% and
a 1% foreign exchange rate impact. The unit growth in Europe reflects the
release of the MULTI-LINK TETRA Coronary Stent System in Europe which was fully
launched in June of 2000. The TETRA incorporates Guidant's Variable Thickness
Strut technology (patent pending) which is designed to provide enhanced
flexibility, deliverability and surface area coverage while maintaining radial
strength. As a result of market acceptance of the TETRA, June represented an
all-time record European stent sales month on an average daily unit sales basis.
Worldwide stent revenues were $451.3 million for the six months ended June 30,
2000, as compared to $474.0 million for the six months ended June 30, 1999. Unit
growth for the six months ended June 30, 2000, of 5% was offset by price
declines of 10%. Management anticipates that U.S. sales of stents in the third
quarter of 2000 could be negatively impacted by potential customer inventory
reductions related to the anticipated launch of the TETRA in the U.S. in the
fourth quarter, normal seasonality, and competition. Due to these factors,
management estimates that third quarter of 2000 stent revenues will be less than
the second quarter of 2000.
Angioplasty sales of $88.3 million increased 9.4% for the three month period
ending June 30, 2000, as compared to June 30, 1999, driven by growth
internationally, particularly in Japan. Angioplasty sales for the six months
ended June 30, 2000, were $173.8 million and an increase of 8.6% from the same
period in 1999. Guidant launched the CROSSAIL Coronary Dilatation Catheter in
Europe and other markets outside the U.S. on March 23, 2000. The CROSSAIL offers
the smallest profile of any rapid exchange dilatation catheter currently
available. Guidant received approval to market the CROSSAIL in Japan on May 31,
2000, and in the U.S. on June 28, 2000.
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<PAGE> 16
Sales of Guidant's ANCURE system and accessories were $12.1 million in the
second quarter of 2000 compared to $7.3 million in the first quarter of 2000.
Guidant's ANCURE system received FDA approval in September 1999, providing a
less-invasive approach for treating AAA. The ANCURE has precisely positioned
hooks and a one-piece polyester body that allows the implant to adapt to changes
that occur over time within the aorta, while maintaining the implant's original
position. Over 450 vascular surgery centers and 1,000 physicians are now trained
in the use of the ANCURE product line. For the six months ended June 30, 2000,
ANCURE sales were $19.4 million.
Sales of cardiac surgery products were $15.2 million in the second quarter of
2000 as compared to $10.7 million in the second quarter of 1999. For the first
six months of 2000 these sales were $28.3 million as compared to $20.4 million
in the first six months of 1999. Cardiac surgery sales include the VASOVIEW
UNIPORT PLUS Endoscopic Vessel Harvesting System and products produced by
CardioThoracic Systems, Inc. (CTS). CTS was acquired in a pooling of interests
transaction on November 15, 1999. CTS introduced the VORTEX Stabilization System
during the first quarter of 2000 which is designed to enable the physician to
immobilize a portion of a coronary artery while performing beating heart bypass.
Beating heart procedures potentially reduce post-operative hospital stay, cost
and surgical complications, while preserving the clinical outcomes associated
with conventional surgery.
Although it did not have a significant impact on revenues, Guidant announced CE
Mark and launch in Europe of its GALILEO Intravascular Radiotherapy System on
May 9, 2000. GALILEO is an intravascular, beta-radiation treatment for coronary
artery disease, and represents part of the technology acquired from NeoCardia in
1997.
For the quarter ended June 30, 2000, cost of products sold represents 24.3% of
net sales. Cost of products sold for the quarter ended June 30, 1999, includes
the impact of purchase accounting adjustments related to the write-up of
acquired Intermedics inventory and the impact of stay-pay for Intermedics
manufacturing personnel during the shut-down of the acquired facilities. The
impact of these two items was $11.0 million during the second quarter of 1999.
Cost of products sold, as adjusted to exclude these two items, represented 24.4%
of net sales for the quarter ended June 30, 1999. For the quarter ended March
31, 2000, cost of products
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<PAGE> 17
sold represented 22.3% of net sales. The increase in cost of products sold as a
percentage of net sales as compared to the first quarter of 2000 is primarily a
result of a return to normal production in the second quarter of 2000 after the
PRIZM and TRISTAR launches in the first quarter of 2000. Cost of products sold
as a percentage of net sales was 23.3% for the first six months of 2000 as
compared to 24.1% for the first six months of 1999, excluding stay-pay and the
impact of purchase accounting adjustments for 1999. The improvement in cost of
products sold as a percentage of net sales for the six months ended June 30,
2000, as compared to June 30, 1999, is a result of the lower overall production
costs for pacemakers and defibrillators in the first quarter of 2000.
The Company continued to invest aggressively in research and development.
Research and development expense was $93.0 million in the second quarter of 2000
or 13.9% of sales as compared to $81.2 million in the second quarter of 1999 or
13.3% of sales. Research and development spending for the six months ended June
30, 2000, and June 30, 1999, was $179.4 million and $165.7 million,
respectively. The 1999 research and development spending excludes stay-pay and a
$49 million pre-tax charge related to the appraised value of in-process research
and development for the Intermedics acquisition. Research and development
spending in 2000 includes: (i) development of implantable resynchronization
therapy for the treatment of heart failure; (ii) development of treatments for
atrial arrhythmias; (iii) development of radiotherapy devices for coronary and
peripheral restenosis; (iv) research related to local drug delivery efforts; (v)
research on future generations of current products such as PRIZM II; and (vi)
development of peripheral stents, balloons, guidewires, embolic protection
devices, and other devices used to treat peripheral vascular disease, including
carotid occlusions. The Company intends to continue its aggressive research and
development spending to maintain its commitment to bring new technologies to the
market and provide cost-effective therapies to treat cardiovascular and vascular
diseases.
Sales, marketing, and administrative expenses increased $18.6 million or 10.7%
for the three months ended June 30, 2000, compared to the same period in 1999,
excluding stay-pay in 1999. These expenses for the six months ended June 30,
2000, increased by $28.5 million or 8.2% over the six months ended June 30,
1999, excluding stay-pay in 1999. This increase in spending in both periods was
primarily due to: (i) investment in the United States sales organization and
(ii) increased legal costs associated with various litigation. Also impacting
the
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<PAGE> 18
six months ended June 30, 2000, was product launch costs associated with the
launch of the PRIZM and TRISTAR in the first quarter of 2000.
Operating income for the quarter ended June 30, 2000, as previously defined, was
$221.2 million as compared to $207.2 million for the quarter ended June 30,
1999. This improvement of 6.8% was driven by sales growth of 9.4% offset by
growth in operating expenses including growth in research and development of
14.5% and sales, marketing, and administrative growth of 10.7%. For the six
months ended June 30, 2000, operating income of $439.1 million grew $37.5
million or 9.3% over the six months ended June 30, 1999. For the six months
ended June 30, 2000, sales growth of 7.6% drove operating income growth as well
as slower growth in cost of products sold and controlled growth in operating
expenses.
Net other expenses for the second quarter of 2000 were $39.7 million which
includes interest, royalties, amortization, and other. Net other expenses for
the quarter ended June 30, 1999, were $44.0 million. This decrease in net other
expenses of $4.3 million predominantly relates to higher miscellaneous expenses
in 1999. For the six months ended June 30, 2000, net other expenses were $78.9
million. Net other expenses, excluding a $14.4 million non-cash gain on an
equity investment, were $80.3 million for the six months ended June 30, 1999.
Without considering the effect of the special charges in 1999, the effective
income tax rates for the quarters ended June 30, 2000, and 1999, were 31.5% and
37.4%, respectively. For the six months ended June 30, 2000, and 1999, the as
adjusted effective tax rates were 32.5% and 37.6%, respectively. This
improvement in the as adjusted tax rate reflects the benefit of increased
overseas manufacturing and the fact that CTS losses were not deductible in the
first half of 1999. CTS was acquired in the fourth quarter of 1999 in a tax-free
stock-for-stock transaction. The second quarter of 2000 reflects an adjustment
for a change in forecasted overseas manufacturing. Management currently
estimates that the 2000 effective tax rate will remain at 32.5%.
Net income and earnings per share, assuming dilution, were $124.3 million and
$0.40, respectively, for the second quarter of 2000. Net income and earnings per
share for the quarter ended June 30, 1999, excluding the impact of the special
items, were $102.2 million and $0.33 per share, assuming dilution. This
represents an increase in adjusted net income of $22.1 million or 21.6% and is a
result of the growth in
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<PAGE> 19
operating income, a decrease in net other expenses, and the decrease in the
effective tax rate. Reported net income for the quarter ended June 30, 1999, was
$91.6 million.
Net income and earnings per share, assuming dilution, were $243.1 million and
$0.78, respectively, for the six months ended June 30, 2000. This reflects an
increase of $42.6 million or 21.2% over the as adjusted net income for the first
six months of 1999 due to the same factors discussed above. Reported net income
in 1999 also includes the net impact of $3.3 million for the cumulative effect
of a change in accounting principle, net of income taxes.
LIQUIDITY AND FINANCIAL CONDITION
The Company generated cash flows which were more than sufficient to fund
operations during the six months ended June 30, 2000. Cash and cash equivalents
were $58.5 million at June 30, 2000, an increase of $30.7 million over December
31, 1999.
Working capital of $494.5 million at June 30, 2000, increased by $316.9 million
from the prior year-end level. The increase is attributable to the acquisition
of the Impulse Dynamics option; an increase in accounts receivable of $92.7
million related to sales growth; the increase in cash of $30.7 million; a
decrease in other current liabilities related to payments associated with the
Intermedics and CTS acquisitions; and a decrease in the portion of borrowings
classified as short-term. The current ratio at June 30, 2000, was 1.7:1 compared
to 1.2:1 at December 31, 1999. The Company believes its cash from operations is
sufficient to fund essentially all future working capital needs and
discretionary operating spending requirements.
Net cash used for investing activities totaled $198 million for the six months
ended June 30, 2000, compared to $682.4 million for the same period in 1999. The
acquisition of Intermedics net of cash acquired was a $568 million use of cash
in the first half of 1999. The payment of the Intermedics litigation settlement
of $200 million in the first quarter of 1999 is included in operating
activities. Net additions of property and equipment of $66.3 million for the six
months ended June 30, 2000, compared to $89.6 million for the same period in
1999, were also a significant use of cash for investing activities during both
periods.
Net cash provided by financing activities totaled $14.5 million for the six
months ended June 30, 2000. This reflects $112.1 million of cash outlays under
the Company's systematic stock repurchase program used to offset dilution
resulting from
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<PAGE> 20
issuance of stock under employee stock option and award plans. This amount is
net of proceeds received upon exercise and the tax benefit to Guidant. During
the first half of 2000, approximately 3.5 million shares were repurchased at an
average price of $60.51. During the first half of 1999, approximately 2 million
shares were purchased at an average price of $56.57.
Net proceeds of $346.4 million were received from the issuance of seven year,
6.15% long-term notes in the first quarter of 1999. In addition, commercial
paper was issued to finance the acquisition of Intermedics on February 1, 1999.
At June 30, 2000, the Company had outstanding borrowings of $1,013.6 million at
a weighted average interest rate of 6.60% through the issuance of commercial
paper, bank borrowings, and long-term notes due in 2006. Bank borrowings
represent short-term uncommitted credit facilities with various commercial
banks. The commercial paper borrowings are supported by two credit facilities
aggregating $850 million. There are currently no outstanding borrowings under
these facilities. The Company expects that approximately $357 million of
commercial paper borrowings will remain outstanding for the next twelve months
and, as a result, has classified this amount as long-term at June 30, 2000.
The Company believes that amounts available through existing commercial paper
programs should be adequate to fund maturities of short-term borrowings. The
Company also expects its cash from operations to be adequate to meet its
obligations to make interest payments on its debt and other anticipated
operating cash needs, including planned capital expenditures. Capital
expenditures are expected to be approximately $175 million in 2000, primarily
due to continued investment in the Company's U.S. manufacturing and
administrative facilities. On April 3, 2000, the Company signed an agreement
with Johnson & Johnson covering various technologies and patents. As a result of
this agreement, Guidant paid $125 million for the exclusive right to evaluate
cardiovascular technology currently under development by Impulse Dynamics. If
Guidant chooses to acquire the rights to this technology, additional payments
would be approximately $300 million plus potential contingent payments.
Guidant's credit facilities provide sufficient flexibility that any remaining
payments, if the transaction is consummated, could be financed through issuing
additional debt. Or, the Company could finance the potential transaction through
a combination of debt, equity, and equity-linked securities. The initial $125
million payment was financed through the issuance of commercial paper and has
been recorded in the second quarter of 2000 as a current asset.
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The Company has recognized net deferred tax assets aggregating $185.2 million at
June 30, 2000, compared to $190.3 million at December 31, 1999. In view of the
consistent profitability of its past operations, the Company believes that all
these assets will be substantially recovered and that no significant additional
valuation allowances are necessary.
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Under the safe harbor provisions of the Private Securities Litigation Reform Act
of 1995, the Company cautions investors that any forward-looking statements or
projections made by the Company, including those made in this document, are
subject to risks and uncertainties which may cause actual results to differ
materially from those projected. Economic, competitive, governmental,
technological, and other factors which may affect the Company's operations are
discussed in Exhibit 99.1 filed herewith.
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PART II
OTHER INFORMATION
Item 1. Legal Proceedings
On June 15, 2000, Medtronic and Medtronic USA, Inc., a wholly owned subsidiary
of Medtronic, filed a declaratory judgment action against the Company and CPI in
the United States District Court for Minnesota requesting that the court rule
that Medtronic does not infringe certain of CPI's patents for atrial
fibrillation technology or that these patents are not valid. The Company has
filed a motion to dismiss the action.
On May 17, 2000, the Company and BSC agreed on a settlement structure covering
all patent litigation pending between the two companies. The parties agreed to
dismiss the following lawsuits:
1. The lawsuits filed on October 10, 1995, and March 12, 1996, by ACS, a
wholly-owned subsidiary of the Company, against SciMed, a subsidiary of
BSC, in the Northern District of California alleging that the SciMed
Express Plus and Express Plus II coronary dilatation catheters infringe
certain patents of ACS.
2. The lawsuit filed on March 12, 1996, by ACS against SciMed in the Northern
District of California alleging that SciMed's Trio/Bandit line of coronary
dilatation catheters infringes a patent of ACS.
3. The lawsuit filed on September 17, 1999, by ACS against SciMed and BSC in
the Northern District of California alleging that the SciMed Rebel rapid
exchange coronary dilatation catheter infringes certain patents of ACS.
4. The lawsuit filed on December 29, 1998, by SciMed against the Company in
The Hague, The Netherlands alleging that the ACS RX ELIPSE Coronary
Dilatation Catheter and the ACS RX MULTI-LINK, ACS RX MULTI-LINK HP, and
ACS RX DUET Coronary Stent Systems infringe a European Patent owned by
SciMed.
5. The lawsuit filed on January 13, 1999, by SciMed against the Company, ACS,
and GSC in the Northern District of California alleging that ACS' RX
MULTI-LINK, RX MULTI-LINK HP, and MULTI-LINK RX DUET Coronary Stent Systems
infringe certain SciMed patents.
Additionally, the companies agreed to specified financial terms depending upon
the outcome of appeals pending in the following lawsuits:
22
<PAGE> 23
PART II
OTHER INFORMATION
Item 1. Legal Proceedings (Continued)
1. The lawsuit filed on August 12, 1998, by ACS and GSC against SciMed and BSC
in the Southern District of Indiana alleging that SciMed's NIR Stent
infringes certain patents. In the lawsuit ACS is seeking injunctive relief
and monetary damages. On June 28, 2000, the court granted BSC's and
SciMed's motion for summary judgment of non-infringement and entered a
final judgment dismissing the case. The Company has appealed this
decision.
2. The lawsuit originally filed on May 31, 1994, by SciMed against ACS in the
Northern District of California alleging that the ACS RX ELIPSE Coronary
Dilatation Catheter infringes certain patents of SciMed. SciMed
subsequently amended the complaint to allege infringement by the ACS RX
MULTI-LINK Coronary Stent System. SciMed has appealed the court's order
granting ACS' motion for summary judgment of non-infringement.
On November 26, 1996, the Company, CPI, GSC, and Lilly filed a patent
infringement suit against St. Jude Medical, Inc. and its subsidiaries,
Pacesetter, Inc. and Ventritex, Inc. (collectively, "St. Jude"), in the United
States District Court for the Southern District of Indiana (the "Indiana
Action"). In the complaint, as amended, the Company alleges that all of St.
Jude's defibrillator products are the same or similar to certain Ventritex
devices which Ventritex admitted infringed valid, enforceable claims of certain
fundamental U.S. defibrillator patents licensed to CPI. Among other defenses to
this action, St. Jude claimed that it had a license to these patents because it
acquired, in 1996, certain assets or stock of several Telectronics companies,
including rights under a license agreement (the "Telectronics Agreement")
entered into in 1994 among CPI, Lilly, and certain entities affiliated with
Telectronics Holdings Ltd. (Telectronics). The Company asserted that licensing
rights under the Telectronics Agreement did not transfer to St. Jude, and the
purported transfer of the Telectronics Agreement to St. Jude was null and void
under the terms of the Telectronics Agreement.
23
<PAGE> 24
PART II
OTHER INFORMATION
Item 1. Legal Proceedings (Continued)
On December 24, 1996, Telectronics and Pacesetter filed suit against the
Company, CPI, GSC, and Lilly in the United States District Court for the
District of Minnesota alleging that the question of the validity of the
purported transfer of Telectronics Agreement should be resolved pursuant to an
arbitration provision in the Telectronics Agreement. On July 9, 1998, the
Minnesota District Court entered an order referring the matter to arbitration
and, as a result, the question of the validity of the purported transfer of the
Telectronics Agreement was arbitrated in a proceeding involving the Company,
CPI, GSC, Lilly, and Telectronics. The Indiana Action was stayed to allow the
arbitrator to rule on this transfer question.
On July 10, 2000, the arbitrator determined in a Final Award that St. Jude's
1996 acquisition of certain Telectronics' assets and stock did not satisfy the
transfer requirements of the License Agreement, and that the purported transfer
of the Telectronics Agreement to St. Jude was null and void. The Company will
now pursue its patent infringement claims against St. Jude's defibrillator
products in the Indiana Action. The complaint seeks an injunction against
further sales of infringing defibrillator products, damages for past sales, and
a finding of willful infringement.
On June 4, 1996, General Surgical Innovations, Inc. (GSI) filed suit against
Origin Medsystems, Inc. (Origin), a wholly-owned subsidiary of the Company, in
the Northern District of California alleging that Origin's VASOVIEW Balloon
Dissection System, Preperitoneal Distention Balloon Systems, and Extraview
Balloon Systems infringe a patent owned by GSI. GSI's motion for summary
judgment of infringement was granted on October 29, 1998, and a trial was held
on the validity of the GSI patent, willful infringement and damages. On February
8, 1999, the jury held the patent was valid, that Origin's infringement of the
patent was willful, and awarded GSI approximately $12.9 million in damages,
which the Company has accrued. GSI filed post-trial motions seeking injunctive
relief, enhancement of damages and a declaration that the case was exceptional
so as to provide a basis for an award of attorney's fees. By an order and
judgment entered on April 16, 1999, the court declined GSI's requests to enhance
damages and to declare the case exceptional. The court issued an
24
<PAGE> 25
PART II
OTHER INFORMATION
Item 1. Legal Proceedings (Continued)
injunction, enjoining sales of the accused Origin products for use in the United
States. Origin appealed the issues of infringement and willfulness, and GSI
appealed the issues of infringement, enhanced damages and attorney's fees. On
July 10, 2000, the Federal Circuit Court of Appeals vacated the infringement and
willful infringement determinations and denied GSI's appeal to enhance damages
and remanded the case to the district court for further proceedings.
Item 4. Submission of Matters to a Vote of Security-Holders.
(a) The Company's Annual Meeting of Shareholders was held on
May 15, 2000.
(b) At the meeting, the following directors were re-elected to
three year terms:
J.M. Cornelius
M. Grobstein
M. Novitch
E.L. Step
In addition, the following directors continue in office for terms ending in the
year indicated:
K.B. Clark - 2001
M.A. Cox, Jr. - 2001
R.W. Dollens - 2001
E.C. Falla - 2001
J.B. King - 2002
S.B. King - 2002
J.K. Moore - 2002
R.E. Wager - 2002
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<PAGE> 26
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders.(Continued)
(c) The following matters were voted on at the meeting:
Election of Directors:
Name For Withheld
---- --- --------
J.M. Cornelius 223,041,034 47,901,529
M. Grobstein 267,735,194 3,207,369
M. Novitch 267,751,444 3,191,119
E.L. Step 257,511,639 13,430,924
Ratification of appointment of Ernst & Young LLP as Independent Auditors:
For Against Abstain
--- ------- -------
270,019,406 306,848 616,309
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. The following documents are filed as exhibits to this
report:
3 By-Laws
10 Master License Agreement dated April 3, 2000,
by and among Cordis Corporation, Guidant
Corporation, and their respective affiliates
[Portions of the Agreement have been omitted pursuant
to a request for confidential treatment.]
27 Financial Data Schedule
99 Factors Possibly Affecting
Future Operating Results
(b) Reports on Form 8-K. During the quarter for which this Report on
Form 10-Q is filed, the registrant filed no reports on Form 8-K.
26
<PAGE> 27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
GUIDANT CORPORATION
(Registrant)
Date August 7, 2000 /s/Keith E. Brauer
-----------------------------------
Keith E. Brauer
Vice President, Finance and
Chief Financial Officer
Date August 7, 2000 /s/Michael A. Sherman
-----------------------------------
Michael A. Sherman
Corporate Controller and
Chief Accounting Officer
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<PAGE> 28
Exhibit List
3 By-Laws
10 Master License Agreement dated April 3, 2000,
by and among Cordis Corporation, Guidant
Corporation, and their respective affiliates
[Portions of the Agreement have been omitted pursuant
to a request for confidential treatment.]
27 Financial Data Schedule
99 Factors Possibly Affecting
Future Operating Results
28
